Do we need a separate banking system? An assessment

Gunnar Lang and Michael Schröder

No 13-011, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Motivated by the current discussion on different separate banking systems, we provide an overview of the different systems, question them and outline their effect on systemic stability and the German banking sector. The results show that the various separate banking systems only play a minor role in reducing and limiting systemic risk. They only marginally contribute to solving conflicts of interest and can even be detrimental to banking business diversification. A separate banking system could, however, facilitate banking supervision by reducing the banking system's complexity. Furthermore, credible threats to not support investment banks with federal resources in times of crisis could lead to a more adequate incentives structure of suppliers of equity and outside capital. More efficient measures to further reduce systemic risk in the financial sector should, however, use different levers, such as additional minimum regulatory capital requirements.

Keywords: Banking Regulation; Commercial and Investment Banking; Financial Crises (search for similar items in EconPapers)
JEL-codes: G01 G18 G24 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ban and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:13011

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